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Economic ideas for a complex climate policy regime

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  • Burtraw, Dallas
  • Woerman, Matt

Abstract

The parsimony of economic theory provides general insights into an otherwise complex world. However, the most straightforward organizing principles from theory have not often taken hold in environmental policy or in the decentralized climate policy regime that is unfolding. One reason is inadequate recognition of a variety of institutions. This paper addresses three ways that the standard model may inadequately anticipate the role of institutions in the actual implementation of climate policy, with a U.S. focus: multilayered authority across jurisdictions, the impressionistic rather than deterministic influence of prices through subsidiary jurisdictions, and the complementary role of prices and regulation in this context. The economic approach is built on the premise that incentives affect behavior. We suggest that an important pathway of influence for economic theory is to infuse incentive-based thinking into the conventional regulatory framework. In a complex policy regime, incentives can be shaped by shadow prices as well as market prices.

Suggested Citation

  • Burtraw, Dallas & Woerman, Matt, 2013. "Economic ideas for a complex climate policy regime," Energy Economics, Elsevier, vol. 40(S1), pages 24-31.
  • Handle: RePEc:eee:eneeco:v:40:y:2013:i:s1:p:s24-s31
    DOI: 10.1016/j.eneco.2013.09.021
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    References listed on IDEAS

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    1. William M. Shobe & Dallas Burtraw, 2012. "Rethinking Environmental Federalism In A Warming World," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-33.
    2. Dallas Burtraw & William Shobe, 2008. "State and Local Climate Policy under a National Emissions Floor," Working Papers 2008-05, Center for Economic and Policy Studies.
    3. Burtraw, Dallas & Palmer, Karen & Kahn, Danny, 2010. "A symmetric safety valve," Energy Policy, Elsevier, vol. 38(9), pages 4921-4932, September.
    4. Burtraw, Dallas & Woerman, Matt, 2012. "US Status on Climate Change Mitigation," Discussion Papers dp-12-48, Resources For the Future.
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    6. Suzi Kerr & Richard G. Newell, 2003. "Policy-Induced Technology Adoption: Evidence from the U.S. Lead Phasedown," Journal of Industrial Economics, Wiley Blackwell, vol. 51(3), pages 317-343, September.
    7. Dallas Burtraw & Alan Krupnick & Erin Mansur & David Austin & Deirdre Farrell, 1998. "Costs And Benefits Of Reducing Air Pollutants Related To Acid Rain," Contemporary Economic Policy, Western Economic Association International, vol. 16(4), pages 379-400, October.
    8. Lawrence H. Goulder & Robert N. Stavins, 2011. "Challenges from State-Federal Interactions in US Climate Change Policy," American Economic Review, American Economic Association, vol. 101(3), pages 253-257, May.
    9. Nelson, Randy A & Tietenberg, Tom & Donihue, Michael R, 1993. "Differential Environmental Regulation: Effects on Electric Utility Capital Turnover and Emissions," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 368-373, May.
    10. Richard Schmalensee & Robert N. Stavins, 2013. "The SO 2 Allowance Trading System: The Ironic History of a Grand Policy Experiment," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 103-122, Winter.
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    12. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894.
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    13. Spencer Banzhaf, H. & Burtraw, Dallas & Palmer, Karen, 2004. "Efficient emission fees in the US electricity sector," Resource and Energy Economics, Elsevier, vol. 26(3), pages 317-341, September.
    14. Williams, Roberton C., 2012. "Growing state–federal conflicts in environmental policy: The role of market-based regulation," Journal of Public Economics, Elsevier, vol. 96(11), pages 1092-1099.
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    18. Burtraw, Dallas & Woerman, Matt & Paul, Anthony, 2012. "Retail electricity price savings from compliance flexibility in GHG standards for stationary sources," Energy Policy, Elsevier, vol. 42(C), pages 67-77.
    19. Salant, Stephen W & Henderson, Dale W, 1978. "Market Anticipations of Government Policies and the Price of Gold," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 627-648, August.
    20. Pearce, David, 2006. "The political economy of an energy tax: The United Kingdom's Climate Change Levy," Energy Economics, Elsevier, vol. 28(2), pages 149-158, March.
    21. Dallas Burtraw & Art Fraas & Nathan Richardson, 2011. "Policy Monitor--Greenhouse Gas Regulation under the Clean Air Act: A Guide for Economists," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(2), pages 293-313, Summer.
    22. Portney, Paul R, 1990. "Economics and the Clean Air Act," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 173-181, Fall.
    23. Michael Hanemann, 2010. "Cap-and-trade: a sufficient or necessary condition for emission reduction?," Oxford Review of Economic Policy, Oxford University Press, vol. 26(2), pages 225-252, Summer.
    24. Burtraw, Dallas & Fraas, Arthur G. & Richardson, Nathan, 2011. "Greenhouse Gas Regulation under the Clean Air Act: A Guide for Economists," Discussion Papers dp-11-08, Resources For the Future.
    25. Nicholas Z. Muller & Robert Mendelsohn, 2009. "Efficient Pollution Regulation: Getting the Prices Right," American Economic Review, American Economic Association, vol. 99(5), pages 1714-1739, December.
    26. Dalia Patino-Echeverri & Dallas Burtraw & Karen Palmer, 2013. "Flexible mandates for investment in new technology," Journal of Regulatory Economics, Springer, vol. 44(2), pages 121-155, October.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. John A. “Skip” Laitner, 2015. "Linking energy efficiency to economic productivity: recommendations for improving the robustness of the U.S. economy," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 4(3), pages 235-252, May.
    2. Michel Damian, 2014. "La politique climatique change enfin de paradigme," Post-Print halshs-00969308, HAL.
    3. Burtraw, Dallas & Linn, Joshua & Palmer, Karen & Paul, Anthony, 2014. "The Costs and Consequences of Clean Air Act Regulation of CO2 from Power Plants," Discussion Papers dp-14-01, Resources For the Future.
    4. repec:tpr:glenvp:v:17:y:2017:i:2:p:45-64 is not listed on IDEAS
    5. Dallas Burtraw & Matt Woerman & Alan Krupnick, 2016. "Flexibility and Stringency in Greenhouse Gas Regulations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(2), pages 225-248, February.
    6. Paul, Anthony & Palmer, Karen & Woerman, Matt, 2014. "Designing by Degrees: Flexibility and Cost-Effectiveness in Climate PolicyAbstract: Substantially reducing carbon dioxide (CO2) emissions from electricity production will require a transformation of t," Discussion Papers dp-14-05, Resources For the Future.

    More about this item

    Keywords

    Institutions; Federalism; Subsidiarity; Shadow prices; Incentives; Regulation;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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